Jeffrey Schumacher

The third quarter has come to a close.  In the category of global large-cap mixed equity, Gavekal, JOHCM and State Street offered the best-performing funds during these three months, as measured by the performance of funds with a classification for the Netherlands in this week’s Morningstar Top 5. 

Factor investing, an investment approach that involves targeting specific drivers of return across asset classes, is attracting increasing interest from investors. Factors such as value, size and momentum have a long history in the investment world and have been extensively empirically researched and documented in the academic literature. Although there are different variations for these factors as well, the factor quality is perhaps the most debated, both in academia and in practice.

The erratic first half of 2022, which sent leading stock market indices into bear market territory, has clearly left its mark on the fund universe. Fund houses active in the bond markets saw a general outflow of investor money, and although on balance equity funds attracted investor interest, large differences could be seen at the category level. Active funds did not appeal to investors, while the least sustainable investment funds were also out of favour.

Concerns about rising inflation, monetary tightening, supply chain problems, Russia’s invasion of Ukraine and strict Covid measures curbing the Chinese economy dominated investor sentiment in the first half of 2022. The speed and intensity of the sell-off that hit fast-growing, highly-rated, and loss-making companies in particular was relentless.

Growing concerns and increasing recession fears set the tone for an erratic second quarter in which global equities went on sale. The S&P 500 index experienced its worst half year in 50 years, down 20 percent in US dollar terms; global inflation is at a 40-year high; and the era of monetary easing appears to be coming to an end as the Fed raised policy rates twice in the past three months, with June’s 75 basis point increase the biggest step since 1994.

Over the past five years, US equities have shown superior performance. Measured over the five years ending May 2022, the S&P 500 index achieved an annualised total return of 13.9% in euros, compared with 10.8% for the MSCI World index. The return of the MSCI Europe index compares favourably with 5.1%. Only in 2017 did US equities perform less well, but in the years thereafter it was America First.

Emerging countries often appeal to investors’ imagination. Fast-growing economies, demographic attractiveness and a wide variety of investment opportunities make them attractive. In this week’s Top 5, we look at the best equity funds for emerging Europe.

The vibrant economies of South-East Asia are prominently on investors’ radar, partly due to China’s spectacular economic rise, which has given the entire region a major economic boost. As a result, the emerging countries that lie less far to the east, the Central and Eastern European region, have been forgotten.